The big question on the minds of federal regulators is: Which is the next bank to fail?
The second question is whether many of the banks which have failed were closed due to real estate loans that were in default or foreclosure.
Over the past weekend regulators closed five banks, pushing the 2009 total to 69 failures. According to CNN Money, the total losses relating to closed banks for the Federal Deposit Insurance Corporation is $15.13 billion for 2009 so far, compared to $17 billion for all of 2008. This year a total of 69 banks have been closed by regulators compared to 25 in 2008 and a mere three banks in 2007.
One of the local failures over the weekend was First Bank Americano, of Elizabeth, NJ, which was closed by the New Jersey Department of Banking and Insurance. The 12-year-old bank’s mission was to serve the Hispanic community. The bank had approximately $166 million in assets. At the end of the second quarter, the bank had total loans of $106.5 million, of which $92.5 million were secured by real estate.
Crown Bank agreed to assume all of the failed bank’s assets and $157 million in deposits. As reported in the Newark Star Ledger, while the real estate market was hot, First Bank helped to finance millions of dollars worth of redevelopment. The majority of the loans were made to local real estate developers proposing multi-family housing in small cities like Elizabeth and Jersey City. One of the shareholders and members of the board of directors was State Senator Ray Lesniak, who served as the board’s vice chairman.
The first New Jersey bank that failed this year was Citizens Community Bank of Ridgewood, NJ, with approximately $45.1 million in assets. The bank had total loans of $27.5 million, of which $24 million was secured by real estate. In September 2008, the FDIC issued a 39-page cease-and-desist order alleging “hazardous” lending practices, “unsatisfactory” capital, inadequate management oversight, violations of the Federal Bank Secrecy Act and other problems. According to industry analysts, the four-and-a-half-year-old bank never reported a profitable year and had been hurt by commercial and residential loans.
Regulators stated that the bank was operating with “an excessive level of adversely classified loans and/or delinquent loans” and “inadequate earnings to cover losses, support operations and augment capital.” The bank was also accused of operating a mortgage division “without proper oversight and risk analysis.”
The chairman of the board of the bank is James Bovino, head of four real estate companies that owned various real estate in New Jersey. In October 2008, Bovino filed for Bankruptcy Court protection from creditors, who are owed up to $40 million. Bovino is also the chairman and founder of Whiteweld & Company. Centuria, an affiliate of Whiteweld & Company, acquired a 16-acre tract of land in Fort Lee, where it planned the $1 billion project called Centuria, one of the largest mixed-use developments in the state of New Jersey. The development, which is stalled, was to contain high-rise and mid-rise luxury condominiums, a four-star hotel, top retailers and Class A office space.
The last FDIC-insured institution to fail in New Jersey was Dollar Savings Bank of Newark, on Feb. 14, 2004.
Last month, Waterford Village Bank of Williamsville, NY, with approximately $61.4 million in assets, was closed. It was the first New York state bank closed in 2009.
The last FDIC-insured institution to be closed in the state was Reliance Bank, based in White Plains, which closed on March 19, 2004. Waterford is the first bank failure in Western New York since May 31, 1991, when regulators seized Buffalo-based Goldome.
All of the banks which closed in New York and New Jersey were issued a cease-and-desist order, which is a formal agreement between regulators and a bank that the operations must undergo an overhaul overseen by regulators. Of the 69 banks which failed this year, almost all had been issued cease-and-desist orders by regulators.
One thing is certain: With valuations of real estate dropping, industry leaders expect more under-capitalized banks who have provided real estate mortgage financing to come under the scrutiny of regulators and be issued cease-and-desist orders. Banks who are issued these orders must take steps to show the regulators that they are on track to remain solvent.
Michael Stoler is a columnist for The Real Deal and host of real
estate programs “The Stoler Report” and “Building New York” on CUNY TV
and on WEGTV in East Hampton. His radio show, “The Michael Stoler Real
Estate Report,” airs on 1010 WINS on Saturdays and Sundays. Stoler is a
director at Madison Realty Capital as well as an adjunct professor at
NYU Real Estate Institute, and a former contributing editor and
columnist for the New York Sun.